3.4.2 Prospects for the oilcrops sector

Food demand. The growth of food demand in the developing countries was the major driving force behind the rapid growth of the oilcrops sector in the historical period. The most populous countries played a major role in these developments (Table 3.16).

Will these trends continue in the future? In the first place, slower population growth, particularly in the developing countries, will be reflected in slower growth rates of their aggregate demand for food, ceteris paribus. Naturally, others things will not be equal: in particular, the per capita consumption of the developing countries was only 5.3 kg in the mid-1970s. This afforded great scope for the increases in consumption that took place. However, in the process, per capita consumption grew to 9.9 kg in 1997/99. There is reduced scope for further increases and this will lead to slower growth in the future. A deceleration in growth has already been evident for some time: the annual growth rate of per capita demand declined to 1.9 percent p.a. in the decade to 1999, down from 2.9 percent p.a. in the preceding ten-year period. Even this reduced growth rate was well above that for other food products. The corresponding growth rate for cereals (direct food demand per capita in the developing countries) has been near zero in recent years. Only demand for meat has had higher growth rates, heavily influenced by developments in China where meat production data may grossly overstate actual consumption (see Section 3.3).

Despite the increases already achieved, vegetable oils and oil products still have relatively high income elasticities in the developing countries, particularly those in which consumption of livestock products and animal fats is and will likely remain at low levels. In our earlier projections to 2010, the per capita food consumption of all vegetable oils, oilseeds and products (expressed in oil equivalent) was projected to rise from 8.2 kg in 1988/90 to 11 kg in 2010 (Alexandratos, 1995, Table 3.5). By 1997/99 it had grown to 9.9 kg. In the current projections, the per capita food demand for the developing countries as a whole rises further to 12.6 kg in 2015 and to nearly 15 kg by 2030 (Table 3.17). We have already noted earlier that average per capita food consumption (all food products) in developing countries may rise from the 2 680 kcal of 1997/99 to 2 850 kcal in 2015 and to 2 980 kcal by 2030 (see Chapter 2). Vegetable oils and products would contribute some 45 percent of this increase. This is an acceleration of the historical trend for these commodities to account for an ever-increasing part of the growth in food consumption in the developing countries. They had contributed 18 percent of the total increment in the decade from the mid-1970s to the mid-1980s and 27 percent in the subsequent decade.

It follows that this group of products will play an important role in increasing dietary energy availability. However, it is clear that, given lower growth rates of both population and per capita demand, the growth of aggregate food demand for these products will probably be well below that of the past. The relevant data and projections are shown in Table 3.17. The growth rate of food demand in developing countries is projected to be 2.9 percent p.a. in the period to 2015, down from 3.6 percent p.a. in the 1990s. Obviously, the explosive growth in the demand for food of the past two decades in countries such as China and India (which contributed 47 percent of the increase in total food demand of the developing countries, see Table 3.16) cannot be sustained at the same rates in the decades to come, even though further substantial growth is in prospect. What was said earlier in relation to the slowdown of aggregate demand for all agricultural products (Section 3.1) applies a fortiori to the food demand for vegetable oils. That is, much higher growth rates than projected here of these calorie-rich products would drive the average food consumption of many countries to excessive levels.

Non-food industrial uses. We noted earlier the inadequacy of the statistics on vegetable oil products used for non-food industrial purposes. However, we also noted that some of the industrial products resulting from such use have high income elasticities of demand. There is, therefore, a prima facie case to believe that the share of total vegetable oil production going to non-food industrial uses will continue to grow fairly rapidly. In the projections, we make an allowance for this category of demand to grow at rates above those of the demand for food (3.5 percent p.a. versus 2.1 percent p.a.). Even so, this growth rate is lower than the historical one. This is an additional factor contributing to the slowdown of the growth of aggregate demand for all uses (Table 3.15).

Trade. The projected fairly buoyant growth in demand, and the still considerable potential for expansion of production in some of the major exporters, suggest that past trade patterns will continue for some time, i.e. rapidly growing imports in most developing countries, matched by continued export growth of the main exporters. The projections are shown in Table 3.20. For the developing countries, they suggest a continuation of past patterns. Further rapid growth of exports from the major developing exporters will be more than compensated by the equally rapid growth of imports by other developing countries. The positive net trade balance of the developing countries, as measured here,32 will stagnate or even decline somewhat. With the development of the livestock sector in developing countries and growing use of feed concentrates, their demand for oilmeals will increase and their net trade surplus in this subsector of the oilcrops complex will tend to disappear and eventually become negative. It is considered that China will become a major contributor to these developments. According to a recent USDA report,«Expansion of its feed manufacturing sector will require China to import more oilseed meals and more oilseeds for crushing. China's meal production from domestically grown soybeans is currently about 6 million tonnes, far short of the country's estimated demand for 20 to 30 million tonnes of oilseed meals annually over the next decade»(USDA, 1999b).

Table 3.20: Net trade balances for oilseeds, oils and products

1974/76

1997/99

2015

2030

Million tonnes (oil equivalent)1

Developing countries

3.0

4.0

3.4

3.5

Malaysia

1.3

9.0

Argentina

0.2

4.9

Indonesia

0.4

3.9

Brazil

1.0

2.6

Philippines

1.1

0.9

Subtotal, five major exporters

4.0

21.3

31.6

44.0

India

0.0

-2.9

China

0.0

-2.8

Mexico

-0.1

-1.5

Pakistan

-0.2

-1.3

Egypt

-0.2

-0.9

Bangladesh

-0.1

-0.8

Korea, Rep.

0.0

-0.7

Iran, Islamic Rep.

-0.2

-0.7

Taiwan Province of China

-0.2

-0.7

Hong Kong SAR

-0.1

-0.7

Subtotal, ten major importers

-1.1

-13.1

-21.3

-30.0

Other developing countries

0.0

-4.1

-6.9

-10.5

Industrial countries

-2.9

-0.9

-0.5

-1.3

United States

2.8

4.9

Canada

0.2

2.3

Japan

-1.3

-2.6

EU-15

-4.3

-5.0

Other industrial countries

-0.3

-0.6

Transition countries

0.0

-0.2

-0.2

0.0

World balance (stat. discrepancy)

0.2

2.9

2.7

2.3

1 Trade in oils and products derived from oils plus the oil equivalent of trade in oilseeds; trade in oilmeals not included in order to avoid double counting in the equation: production + net trade = consumption expressed in oil equivalent.

Production. Production issues are discussed in Chapter 4. Production analysis of oilcrops is conducted separately in terms of the individual crops listed in Table 3.18. Cotton is included among these crops because it contributes some 4 percent of world oil production, although projected production is determined in the context of world demand-supply balance of cotton fibre rather than oil. The production projections for these major oilcrops are shown in Table 3.18. It was noted in Table 3.19 that oilcrop production has been responsible for a good part of the area expansion under crops in, mainly, the developing countries.

Will these crops continue to play this role? The analysis presented in Chapter 4 suggests that they will indeed continue to be a major force in the expansion of harvested area in developing countries. As shown in Table 3.19, in the preceding two decades oilcrops accounted for 47 percent of the total increase in the harvested area under the major crops of the developing countries. In the projection period, they will account for 50 percent. The relatively land-intensive nature of oilcrop production growth reflects in large part the fact that they are predominantly rainfed crops (less than 10 percent irrigated, compared with about 40 percent for cereals).

3.5 Roots, tubers and plantains

3.5.1 Past and present

Food consumption of roots, tubers and plantains.
This category of basic foods comprises a variety of products; the main ones are cassava, sweet potatoes, potatoes, yams, taro and plantains.33 Average world food consumption is 69 kg per capita, providing 6 percent of total food calories. However, these products represent the mainstay of diets in several countries, many of which are characterized by low overall food consumption levels and food insecurity. The great majority of these countries are in sub-Saharan Africa. The region's per capita consumption is 194 kg, providing 23 percent of total calories, but some countries depend overwhelmingly on these products for food. Thus, Ghana, Rwanda and the Democratic Republic of the Congo derive 50 percent or more from these foods. Another 16 countries, all in sub-Saharan Africa, derive between 20 and 50 percent.

Figure 3.13 shows the relevant data for the 19 countries that derive more than 20 percent of total food consumption from these products. Collectively, they have a population of 345 million (60 percent of sub-Saharan Africa's total population). Most have low overall per capita food consumption (under 2 200 calories, several of them under 2 000) and, consequently, high incidence of undernourishment. Cereals, which in the developing countries as a whole provide 56 percent of total food calories, account in these countries for much smaller proportions, typically 20-45 percent, rising to just over 50 percent only in the United Republic of Tanzania (mostly maize), Togo (maize, sorghum and rice) and Madagascar (rice).

Figure 3.13
Countries with over 20 percent of calories from roots, tubers and plantains in 1997/99

The high dependence on roots, tubers and plantains reflects the agro-ecological conditions of these countries, which make such products suitable subsistence crops, and to a large extent also the persistence of poverty and lack of progress towards diet diversification. There are significant differences as to which of these starchy products provide the mainstay of diets in the 19 countries dependent on this family of products. Cassava predominates in most of them (the Congo, the Democratic Republic of the Congo, Angola, Mozambique, the United Republic of Tanzania, the Central African Republic, Liberia and Madagascar). In contrast it is mostly plantains in Rwanda and Uganda, and cassava and sweet potatoes in Benin, Togo, Nigeria and Burundi, while there is more balance among the different products (cassava, plantains, sweet potatoes and other roots and tubers - mostly yams) in the other countries (Ghana, Cameroon, Côte d'Ivoire, Guinea and Gabon).

It should be noted that although high dependence on these foods is typical of many countries with low overall food consumption, the phenomenon is far from universal. Many countries with low food intakes consume only minuscule quantities of starchy roots. For example, there are 13 countries34 with low calories (under 2200), which derive less than 10 percent from roots, and some less than 2 percent. The explanation of these wide disparities is straightforward for some of these countries: their agro-ecologies are not suitable for rainfed cultivation of these products. In several countries (e.g. Yemen, Somalia, Afghanistan, Eritrea, the Niger and Mongolia) the potential land suitable for any rainfed crops (at the intermediate level of technology as defined in the agro-ecological zones study discussed in Chapter 4) is extremely scarce (in per capita terms) and very little of it is suitable for any of the starchy crops considered here. Irrigated agriculture in these countries is devoted to other more valuable crops.

However, there are also several low food-intake countries that consume few starchy products, even though high proportions of their potential agricultural land are suitable for their rainfed cultivation. The explanation is probably to be found, at least in part, in the fact that even higher proportions are suitable for other more preferred crops, e.g. rice (Bangladesh, Cambodia and the Lao People's Democratic Republic) or maize (Zimbabwe and Kenya). Beyond that, the factors that contributed to the formation of traditional agricultural production patterns and present prevailing food consumption habits, probably explain why fairly similar agro-ecological conditions can result in widely differing diet preferences for starchy foods. This is most evident in Thailand which produces some 17 million tonnes of cassava but consumes only 4 percent of it as food (11 kg per capita), with the rest going to export as animal feed (see below).

In conclusion, a positive correlation between dependence of food consumption on starchy foods and agro-ecology certainly exists in countries with low incomes and food consumption, but it is rather weak. It is more significant if we control for the effects of the level of total food consumption (kcal/person/day from all foods.) The higher the level, the lower the percentage coming from starchy foods, ceteris paribus - this is a proxy for the negative income elasticity of demand for these products. Another factor causing a difference in«food habits» is the share of calories coming from rice and maize.

The preceding discussion reflects the current situation (average 1997/99) across different countries. The evolution over time shows declining per capita food consumption of starchy foods for the developing countries and the world as a whole up to about the late 1980s, followed by some recovery in the 1990s. These developments were a result of two main factors:

the rapid decline in food consumption of sweet potatoes in China (from 94 kg in the mid-1970s to 40 kg at present), the parallel rise in that of potatoes, in both China (from 14 kg to 34 kg) and the rest of the developing countries (from 9 kg to 15 kg); and

the rapid rise of food consumption of all products in a few countries, e.g. Nigeria, Ghana and Peru, with Nigeria having a major weight in shaping the aggregate for sub-Saharan Africa.

These developments are plotted in Figure 3.14. Some studies highlight the high income elasticity of demand for potatoes in the developing countries, the majority of which have very low levels of per capita consumption.35 This contrasts with the position of the other starchy foods (particularly sweet potatoes but also cassava), whose per capita food consumption in the developing countries has apparently stagnated or declined.36 However, caution is required in drawing firm inferences from these numbers because of the particularly poor quality of data as regards the production and consumption of several of these crops.

Recent efforts to improve the cassava data in Africa in the context of the collaborative study of cassava in Africa (COSCA), initiated in 1989, suggest that cassava is far from being the inferior good put forward in traditional thinking.«The COSCA study found that the income elasticities of demand for cassava products were positive at all income levels» (Nweke, Spencer and Lyman, 2000). Indeed, cassava played an important role in the nutrition gains made by a number of countries that faced severe food insecurity problems. For example, gains in per capita food consumption in Ghana (from 1925 calories in 1984/86 to 2545 calories in 1997/99) and in Nigeria (from 2060 to 2815) came largely from increases in the production and consumption of cassava - 80 and 50 percent of the total calorie increases, respectively. Indeed, these two countries are presented in The State of Food Insecurity in the World 2000 (FAO, 2000a) as success cases in improving food security based on the diffusion of improved high-yielding cassava cultivars, largely developed by the International Institute of Tropical Agriculture (IITA) (see also Nweke, Spencer and Lyman, 2000).

However, such gains were the exception rather than the rule in the many countries with food insecurity problems and dependence on starchy foods. Of the 19 countries in Figure 3.13 only three (Ghana, Nigeria and Benin37) registered significant increases in the per capita food consumption of these products. The others had no gains, indeed most of them suffered outright declines according to the reported production statistics. In conclusion, the experiences of the«success» countries indicate that these crops have a promising potential to contribute to improved food security.

Analysing why most countries with high dependence on these crops (over 20 percent of calories in 1997/99) failed to benefit from such potential can throw some light on the more general issue of conditions that must be met if progress in food security is to be made. The fact that some of these countries have been experiencing unsettled political conditions and war is certainly part of the problem.

Feed uses of root crops. Significant quantities of roots are used as feed, mostly potatoes (14 percent of world production goes to feed), sweet potatoes (36 percent) and cassava (19 percent). A small number of countries or country groups account for the bulk of this use. As regards potatoes, this is mostly represented by the countries of the former Soviet Union, Eastern Europe and China. Potato feed use has declined in recent years in absolute tonnage as well as percentage terms, mainly as a result of the decline of the livestock sector in the transition economies. For sweet potatoes, China accounts for almost the totality of world feed use and for about 70 percent of world production. Feed use in China has been expanding rapidly following the fast growth of its livestock sector and the shift of human consumption to potatoes and other preferred foods.

For cassava, it is mostly Brazil (50 percent of its production goes to feed) and the EU (all imported), each accounting for one-third of world feed use. The EU's feed consumption currently amounts to some 10 million tonnes (fresh cassava equivalent). This is less than half the peak it reached in the early-1990s. The rapid growth of cassava as feed in the EU provides an interesting story of the power of policies to change radically feeding patterns and exert significant impacts on trade as well as on production and land use in distant countries. High domestic cereal prices of the CAP, in combination with low import barriers for oilseeds/meals and cassava, reduced the EU's feed use of cereals (see previous discussion) and increased the use of imported cereal substitutes (such as cassava, oilmeals and corn gluten feed).

The cassava trade (mostly of dried cassava) skyrocketed from less than 5 million tonnes (in fresh root equivalent) in the early 1970s to a peak of 30 million tonnes at the beginning of the 1990s, before falling to half that level in recent years. Much of the increase came from the EU on the import side and from Thailand (and, to a much lesser extent, Indonesia) on the export side. The same holds for the contraction of world trade in recent years following the CAP policy reforms, which reduced cereal prices and improved the competitiveness of cereals vis-à-vis cassava (Figure 3.15). Some compensation for the contraction of the European markets has been provided in recent years by increased imports of cassava for feed use in a number of Asian countries (China, Taiwan Province of China, the Republic of Korea and Japan). However, the problem of low cereal prices in world markets continues to be an obstacle to further expansion (Plucknett, Phillips and Kagbo, 2000).

Figure 3.15
Cassava in Thailand and the EU

In Thailand, cassava production has been one of the major factors in the expansion of agricultural land. Between the early 1970s and the peak of the late 1980s land under cassava increased sevenfold to 1.5 million ha, approximately the same rate as production, as yields remained virtually stagnant at around 15 tonnes/ha. In the same period, deforestation in Thailand (a heavily forested country up to the middle of the last century) proceeded very rapidly. The country's forest cover is estimated to have fallen from 53 percent in 1961 to 25 percent in 1998 (Asian Development Bank, 2000, Chapter 2). The two processes are certainly not unrelated, particularly as cassava can be grown on soils with limited alternative agricultural uses, low fertility, slopes denuded of tree cover and subject to erosion and degradation.38 A recent study on the environmental impact of cassava production concludes that in Thailand«the area expansion [took place] through deforestation of frontier areas, mainly in the northeast ... The massive deforestation continued until the late 1980s, when most land within Thailand's borders, up to the borders with Laos and Cambodia, had already been cleared» (Howeler, Oates and Costa Allem, 2000).

The preceding paragraph provides an illustration of how the environmental impacts of agricultural policies and policy distortions spread far and wide across the world and are not confined locally. The environmental effects of high agricultural support and protection in Europe have been mostly debated in terms of the adverse effects these policies have on the local environment (as a consequence of the more intensive agriculture they promote), such as nitrates in waterbodies, eutrophication, landscape deterioration and the effects of pesticides. However, environmental impacts of policies, particularly those that affect trade, must be evaluated in a global context, with particular reference as to how those impacts manifest themselves in countries that receive the economic stimuli but have no environmental policies in place to internalize costs.

3.5.2 Roots, tubers and plantains in the future

These products will continue to play an important role in sustaining food consumption levels in the many countries that have a high dependence on them and low food consumption levels overall. The possible evolution in food consumption per capita is shown in Tables 2.7-2.8. The main factor causing the decline in the average of the developing countries (precipitous decline of sweet potato food consumption in China) will be much weaker. The scope for further declines is much more limited than in the past. In parallel, the two factors creating increases on the average - the positive income elasticities of the demand for potatoes and the potential offered by productivity increases in the other roots (cassava and yams) - will continue to operate. It will be possible for more countries in sub-Saharan Africa to replicate the experiences of countries such as Nigeria, Ghana, Benin and Malawi, and increase their food consumption. Thus, the recent upturn in per capita consumption of the developing countries is projected to continue (Table 2.7), while the declining trend in sub-Saharan Africa (other than Nigeria and Ghana) may be reversed (Table 2.8).

3.6 Main export commodities of the developing countries

3.6.1 General

Agriculture, and often the overall economy, poverty incidence and food security of several developing countries depend heavily on the production of one or a few agricultural commodities destined principally for export. For example, in Côte d'Ivoire a small number of commodities (cocoa, coffee, cotton, rubber, bananas and palm oil) account for 45 percent of the country's aggregate agricultural output, cocoa predominating with 27 percent. In the past two decades, the dependence of agriculture on these commodities actually increased (from 38 percent in the early 1980s). Agriculture carries a large weight in the country's overall economy (26 percent of GDP), while exports of these commodities provide 50 percent of the country's aggregate export earnings (aggregate, not only agricultural, earnings).39 There has been little movement towards diversification; the levels of dependence of the economy on agriculture, and of the balance of payments on export earnings from these commodities have remained static since the early 1980s. The importance of these commodities as earners of foreign exchange is further enhanced by the fact that the country has a heavy external debt to service; it is classified by the World Bank in the«severely indebted» category (World Bank, 2001b).

Côte d'Ivoire exemplifies the case of countries with high dependence on exports of a few agricultural commodities (both for the incomes generated in agriculture and for foreign exchange earnings) and showing no signs of diversification from such dependence. The country is the world's largest producer and exporter of cocoa, so its own production and exports impact world market prices directly. An additional problem is that some of these export commodities (e.g. coffee and cocoa) are consumed mainly in the industrial countries. The latter have reached fairly high consumption levels, and have low income and price elasticities of demand and low population growth rates. There is, therefore, limited potential for market expansion. In such conditions, attempts to expand production and exports by the main producers/ exporters and/or new entrants can lead to falling prices rather than increased incomes and export earnings.

Another example is Malaysia, which shares Côte d'Ivoire's high dependence of agriculture on a few export commodities, of which the country is a major world supplier. Malaysia is the world's largest producer and exporter of palm oil and the third largest exporter of natural rubber (it was the first until the late 1980s). These two commodities account for 36 percent of the country's agriculture. But here the similarities with Côte d'Ivoire end. Malaysia's per capita income is five times that of Côte d'Ivoire, and the country has been diversifying its economy away from agriculture (from 21 percent of GDP in the early 1980s to 11 percent currently) and reducing its dependence on palm oil and rubber as sources of export earnings. These two commodities now account for 5.6 percent of its aggregate export earnings, down from 20 percent in the early 1980s, even though palm oil exports have tripled in the same period.

In a smaller number of countries there is high dependence of agriculture on a single export commodity. For example, 56 percent of the aggregate agricultural output in Mauritius is sugar, almost all of it exported. Sugar is 46 percent of Swaziland's agriculture (85 percent exported), while in Cuba the shares are 33 and 74 percent, respectively.

The most common case is of countries with high dependence of the balance of payments on the earnings of one or a few agricultural commodities which, however, account for modest percentages of their total agriculture, since domestic crops predominate. For example, Burundi's export earnings are dominated by coffee and, to a much lesser extent, tea (over 80 percent together) but these two crops represent a very small part of the country's agriculture (9 percent) in which bananas, roots/tubers, beans and maize predominate. Likewise, Malawi derives 60 percent of its aggregate export earnings from tobacco and, to a much lesser extent, tea. However, its agriculture is mostly potatoes and maize; tobacco and tea account for only 18 percent of total agricultural production.

It is obvious that in the countries with high dependence on exports of one or a few commodities, the overall economy, and often the welfare of the poor,40 are subject to changing conditions in world markets, i.e. commodity prices and the rate of expansion of markets. For some commodities, the rate of expansion of world consumption has been too slow, while producers/exporters have been competing with one another to capture a market share. The result has been declining and widely fluctuating export prices. This has been particularly marked for coffee in recent years: per capita consumption in the industrial countries, accounting for two-thirds of world consumption, has been nearly constant for two decades at around 4.5 kg (green beans equivalent), while production increased, including from recent entrants in world markets such as Viet Nam (see below). The result has been that the robusta coffee price had precipitated to US$0.50/kg by January 2002 (monthly average), down from a range of US$1.3-2.0/kg in the monthly averages of the three years 1997-99, which itself was not a period of peak prices.

Coffee and cocoa belong to the class of commodities produced exclusively in the developing countries and consumed overwhelmingly in the industrial countries, where there is no close substitute in the agricultural commodities produced locally (although vegetable oils are increasingly making inroads in the chocolate industry as substitutes for cocoa butter). This means that trade policy issues for the countries dependent on the production and exports of these commodities transcend the field of agricultural protectionism and export subsidization often practised by the industrial countries, e.g. for sugar. The main handicap of exporting countries dependent on these commodities is that world demand has been, and will probably continue to be for some time, tantamount to the demand of the industrial countries, and this is not growing at anywhere near the rates required to provide profitable export expansion opportunities for all supplying countries.

Other export commodities are much less subject to these constraints because import demand for them originates increasingly in markets with rapidly growing consumption, notably the importing developing countries. We mentioned earlier the role of these latter as rapidly growing outlets for vegetable oils originating in other developing countries. A similar case is represented by sugar, where imports of the importing developing countries are now equal to almost three-quarters of the net exports of the developing exporters, up from only one tenth in the mid-1970s. The policy issues relevant to sugar and similar commodities (produced in both developed and developing countries) are very much at the heart of the agricultural trade policy debate, because of high support and protection granted to them in the main industrial countries that are, or used to be in the recent past, large importers. For example, under such policies the EU turned from a large net importer of sugar up to the second half of the 1970s to a large net exporter in subsequent years. In the United States aggregate consumption of sweeteners continued to grow, but little of it went to sugar, as the strong protection of the sector from external competition favoured corn-based sweeteners (high fructose corn syrup [HFCS], glucose syrup and dextrose).

It is a common theme in the development literature that countries that have not managed to diversify their economies away from heavy dependence on primary commodity exports have been handicapped in their development. However, this need not be so for all countries. Those that achieve cost-reducing productivity gains can increase export earnings (often, in the case of slowly growing global demand, by gaining a market share at the expense of other exporting countries), and thus pave the way for diversification and an eventual sharp reduction in their dependence on these commodities. Thus, diversification and reduced dependence more often than not pass through a stage of increased and more efficient production of the very commodities from which the country seeks to diversify (World Bank, 1994). The above-mentioned examples of Malaysia and the Côte d'Ivoire are telling. Naturally, for commodities such as coffee, this avenue is not open to all exporting countries simultaneously (adding-up problem or fallacy of composition). The poorer countries in this category face formidable problems in their development because more often than not they are at a disadvantage vis-à-vis other and more advanced competitors.

There is an ongoing need to increase productivity and eventually diversify out of export crops (in relative, not absolute, terms). The long-term trend towards falling real prices of primary farm commodities is not likely to be reversed.41 Limited demand growth together with virtually incessant growth in agricultural productivity has been fuelling this trend. The pipeline of technological innovations, including genetic technologies, is apparently not drying up, indicating further potential for cost reductions (Evenson, 2002). The problem is that countries that do not or cannot benefit from genetic technology will have to accept ever-decreasing returns to the labour producing these commodities. This will further aggravate poverty problems, as there are few alternative employment opportunities in an undiversified economy. If these countries remain in the business of producing«unprofitable» (for them) commodities for export (e.g. tapping rubber trees even more intensively when prices are low), they will face continued difficulties. For more discussion on policies relating to these matters, see Chapter 9.

In what follows, we present possible future outcomes for a few of the main commodities. This is not a comprehensive list but endeavours to cover commodities that span a wide range of policy concerns, from strictly«non-competing»42 commodities (coffee, cocoa) to the«semi-competing» ones (bananas, competing with temperate zone fruit, and natural rubber, competing with synthetic rubber) to fully competing ones (sugar). In recognition of the great diversity of individual developing countries as concerns trade positions and interests in these commodities, a distinction is made between net exporters and net importers. Thus, the sum of the net exports of all net exporter developing countries is taken here as the meaningful measure of performance. It is a much more appropriate indicator than the often used net trade status of all the developing countries together. For example, sugar exports of the net exporting developing countries have been booming in recent years, at least in quantities, mainly because of fast growth of imports of other developing countries (see Table 3.23 below).

3.6.2 Coffee

Coffee is the commodity par excellence produced in one zone (the exporting developing countries in the tropics) and consumed in another (the developed industrialized countries). The growth rate of aggregate demand for coffee has been slow and declining. In this situation, competition to capture a market share among low-income producers (including relatively new entrants such as Viet Nam43) increases production more quickly than consumption, leading to stock accumulation and accentuating the long-term trend towards price declines.

Such price declines are hitting hard the economies of the countries with major dependence on coffee production and exports. The following quotation from The Economist (21 September 2001) is telling:«A slump in the price of coffee is adding to economic misery in Latin America - and no relief is at hand. In Nicaragua, coffee pickers with malnourished children beg for food at the roadside. In Peru, some families have abandoned their land, while others have switched to growing drug crops in search of cash, just as they have in Colombia. From Mexico to Brazil, tens of thousands of rural labourers have been laid off, swelling the peripheries of the cities in a desperate search for work». See also Oxfam (2001).

At the same time, consumers are not getting much benefit from such price declines since retail prices in the main consuming countries have fallen by only a small fraction of the corresponding declines in the world price of coffee beans (Oxfam, 2001, Figure 5). At the same time, coffee producers are getting prices below the world price and only a minuscule part of the retail price of coffee. These large gaps and difference in the behaviour between world trade prices and those received by producers or paid by the consumers are said to reflect, inter alia, the dominance of the world coffee trade by a few giant multinational companies (see Chapter 10, Box 10.2). The relative position of producers has worsened following the collapse of the International Coffee Agreement in 1989. In the pre-1989 period producers were getting around 20 percent of the total income generated by the coffee industry and importing country operators around 50 percent. It is estimated that after 1989 the shares shifted dramatically in favour of the latter (Ponte, 2001, Table 3).

Coffee has benefited much less than other commodities (such as sugar, bananas and natural rubber) from the factors that contributed to market expansion, i.e. the rapid growth of demand and imports in importing developing countries and, in more recent years, in the transition economies. The importing developing countries were taking 4 percent of the net coffee exports of the exporting developing countries in the mid-1970s. This share has now risen to only 7 percent. In contrast, for sugar the net imports of the importing developing countries amount to three-quarters of the net exports of the exporting developing countries, up from only 10 percent in the mid-1970s.

In the projections shown in Table 3.21 there are no radical changes from past trends. World coffee consumption per capita may increase a little and aggregate demand may grow at 1.2 percent p.a., a rate slightly above that of the last two decades. The weight of the industrial countries in world consumption and imports will continue to be dominant, although the importing developing countries and the transition economies will continue to increase their role as consumers and importers, but at a very slow pace. The present very low price levels are not sustainable, and some recovery is expected as producing countries take measures to control the growth of production. The latest World Bank price projections foresee such an upturn in prices. By 2010 they may recover (in real terms) the ground lost in 2000 and 2001, years of sharp declines (World Bank, 2001c, Table A2.13).

32 The trade numbers in Table 3.20 comprise the oils traded as well as the oil equivalent of the trade in oilseeds and products made from vegetable oils. They do not include trade in oilmeals in order to avoid double counting when all numbers are expressed in oil equivalent.33 Plantains are included with the roots and tuber crops because«… Plantains and cooking bananas are grown and utilized as a starchy staple mainly in Africa …» (FAO, 1990).34 Yemen, Afghanistan, Cambodia, Bangladesh, Somalia, Zimbabwe, Mongolia, the Niger, the Lao People's Democratic Republic, Eritrea, the Democratic People's Republic of Korea, Chad and Kenya. 35 «Whereas potatoes are typically considered a cheap, starchy staple in industrialized countries, they tend to be high-priced and sometimes are luxury vegetables in the developing world … Consumption of potatoes increases as income increases. The relationships for cassava and sweet potato are different. As per capita incomes increase, per capita consumption declines» (Scott, Rosegrant and Ringler, 2000).36 «Outside of Kerala (India) and isolated mountain areas of Viet Nam and China, most cassava in Asia for direct food purposes is first processed. As incomes increase over time, also these areas will reduce their non-processed cassava intake in favour of the preferred rice. On-farm cassava flour consumption seems to behave in a similar way to non-processed cassava in Asia, as it is also substituted for rice as economic conditions improve. Nonetheless, on-farm, in the poorer Asian rural areas (Indonesia, Viet Nam and China) cassava may remain as an emergency or buffer crop in times of rice scarcity. However, this is not the primary nor the preferred use» (Henry, Westby and Collinson, 1998). Also,«the general tendency is that cereals are preferred to root crops»(FAO, 1990, p. 24) and«In general, cassava is not well regarded as a food, and in fact there is often a considerable stigma against it» (Plucknett, Phillips and Kagbo, 1998).37 If we extend the sample of countries to include those with dependence between 10-20 percent (another 11 countries) then Malawi, Zambia and Sierra Leone also registered significant increases in production and per capita food consumption of these products.38 «Cassava often winds up in hill-lands, lands with low soil fertility, or lands susceptible to periodic or seasonal drought or flooding» (Plucknett, Phillips and Kagbo, 2000).39 Aggregate export earnings are the sum of goods (merchandise) exports, exports of (non-factor) services and income (factor) receipts (definition and data from World Bank, 2001b).40 Several export commodities, e.g. coffee and natural rubber, are more often than not smallholder crops and significant parts of the agricultural population in many countries depend on them for a living. Even when they are not smallholder crops, the rural poor depend on them as labourers.41«On balance, we do not see compelling reasons why real commodity prices should rise during the early part of the twenty-first century, while we see reasons why they should continue to decline. Thus, commodity prices are expected to decline relative to manufactures as has been the case for the past century» (World Bank, 2000a, p. 8-29).42That is, non-competing with locally produced close substitutes in the main importing/consuming countries, although there is no commodity that does not face some degree of competition in consumption, such as soft drinks for coffee and non-cocoa confectionery for chocolate. As noted, cocoa now faces the competition of vegetable fats in the production of chocolate.43Viet Nam had become the world's second largest producer after Brazil by 2000. Its exports now account for 10 percent of aggregate exports of the developing countries (sum of net exports of all the net exporting developing countries, see Table 3.21), up from only 1 percent ten years earlier.